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March 19, 2015

If You Have Franchisees or Lease Employees, the NLRB May Soon Consider You a "Joint Employer."

Recent National Labor Relations Board ("NLRB" or "Board") actions should mean big changes for an employer that engages in franchising or utilizes subcontract labor. Such an employer may now, or soon will be, considered a joint employer of their franchisee's or subcontractor's employees under the National Labor Relations Act ("NLRA").

Current NLRB Joint-Employer Standard

The joint-employer standard traditionally used by the NLRB was supported by two Board cases decided thirty years ago, TLI, Inc., 271 N.L.R.B. 798 (1984) and Laerco Transp., 269 N.L.R.B. 324 (1984). The decision in TLI, Inc. was based on a Third Circuit Court of Appeals case in which the court found that, where two separate-in-fact entities "share or codetermine those matters governing the essential terms and conditions of employment" for a group of employees, they are each considered an "employer" of those employees subject to the NLRA. NLRB v. Browning-Ferris Industries, 691 F.2d 1117, 1123 (3d Cir. 1982). Citing Laerco, the NLRB held that there must be a showing that the putative joint employer "meaningfully affects" the essential terms and conditions of employment "such as hiring, firing, discipline, supervision, and direction." TLI, Inc., 271 N.L.R.B. at 798.

The "joint employer" concept has been recognized in the context of other federal employment laws, such as Title VII of the Civil Rights Act, the Family and Medical Leave Act ("FMLA"), the Fair Labor Standards Act ("FLSA"). The "joint employer" doctrine as it developed under those statutes has been generally broader than the NLRB's standard. By way of example, in connection with its "joint employer" analysis, the Equal Employment Opportunity Commission ("EEOC") also considers which entity assigns work, controls daily activities, furnishes equipment, pays the worker, provides employee benefits, where the work is performed, how the worker is treated for tax purposes, and whether the worker and the putative employer believe that an employer-employee relationship has been established. See EEOC Enforcement Guidance: Application of EEO Laws to Contingent Workers Placed by Temporary Employment Agencies and Other Staffing Firms, at 4.

Browning-Ferris Industries of California Inc. and Subcontracted Labor

In Browning-Ferris Industries of California, Inc., Case 32-RC-109684, an NLRB Acting Regional Director, citing the existing joint-employer standard, denied an election petition filed by Sanitary Truck Drivers and Helpers Local 350, International Brotherhood of Teamsters on behalf of a group of subcontracted recycling sorters. The union, which already represented other workers at the same facility, appealed the decision, claiming that Browning-Ferris was attempting to avoid its legal obligation to recognize and bargain with the union by claiming that subcontractor Leadpoint Business Service was the sorters' sole employer. The case is currently pending before the Board.

Browning-Ferris and Leadpoint clearly had taken care to ensure operational separation between their respective employees. A written agreement between them declares Leadpoint the sole employer of the subcontracted employees. Leadpoint maintains separate supervisors at the facility who create schedules for the subcontracted employees, oversee material streams, and work on the floor with the sorters. Browning-Ferris supervises its own drivers, heavy equipment operators, forklift operators, control room operators, and a single sorter. Leadpoint and Browning-Ferris have their own human resources departments, each in a different location.

Leadpoint pays and sets the wages for its employees but, by agreement, cannot set a rate above the wage paid by Browning-Ferris for the same job. Leadpoint also provides its employees with optional healthcare and insurance plans and recruits, tests, hires, disciplines, evaluates, and terminates its employees. Browning-Ferris does not take any of these actions with respect to Leadpoint employees, although, in practice, it has recommended termination of a Leadpoint employee.

On April 30, 2014, the NLRB announced that it would review the decision of the Regional Director and invited amicus curiae briefs to address the following questions: 

  • Was the decision correct under the current standard? 
  • "If the board adopts a new standard for determining joint-employer status, what should that standard be?" 
  • "If it involves the application of a multifactor test, what factors should be examined? What should be the basis or rationale for such a standard?"

The EEOC and the NLRB General Counsel, among several others, filed briefs arguing in favor of expanding the NLRB's joint-employer standard. In its argument, the EEOC noted that the definition of "employer" in the NLRA and Title VII are virtually identical but that, since the mid-1980s, the NLRB's joint-employer standard has evolved to become more difficult to apply. In its brief, the EEOC urges the NLRB to adopt the "intentionally flexible" joint-employer standard that the EEOC uses, In its brief, the EEOC urges the NLRB to adopt the "intentionally flexible" joint-employer standard that the EEOC uses, which considers a much broader spectrum of employment conditions.

The NLRB General Counsel argued that, as the agency Congress entrusted to administer the NLRA, the NLRB has the power to make rational changes in the interpretation and application of the NLRA as employment relationships and the American economy evolve and, for that reason, urges the NLRB to modify its joint employment standard "to take into account the economic and industrial realities" of employment relationships. Brief for The General Counsel as Amicus Curiae Supporting Petitioners, Browning-Ferris Industries of California, Inc., Case 32-RC-109684, at 24. Other amicus briefs point out that Browning-Ferris might already be considered a joint employer in the context of rulings under the FMLA and the FLSA.

Opponents of expanding the NLRB standards, citing Laerco, supra, argue that the current standard strikes the appropriate balance between the interests of employers, employees and unions and that a move to modify the NLRB's "joint employer" doctrine would disrupt 30 years of stability, which has led to the development of a variety of successful business relationships. Further, it is argued, expansion of the doctrine would "enmesh separate businesses in bargaining relationships over which they have no significant control without any materially greater protection of employee rights under the act." Brief for Coalition For A Democratic Workplace et al. as Amici Curiae Supporting Respondents, Browning-Ferris Industries of California, Inc., Case 32-RC-109684, at 7.

To date, no decision has been issued by the Board.

McDonald's USA, LLC, and Franchised Labor

In July of 2014, the NLRB's General Counsel issued an opinion1 authorizing the naming of McDonald's USA, LLC, as a "joint employer" in some 291 charges filed with the NLRB since November 2012 involving various McDonald's franchises. Franchisees own 90% of the company's more than 14,000 U.S. restaurants (the rest are corporate owned). As a result, the NLRB has issued 13 consolidated complaints in 13 NLRB regions.

Traditionally, franchisors stay out of day-to-day operations, focusing on brand standards, training, advertising, and the like while franchisees exercise control over employment issues such as hiring, firing, and determining pay rates, benefits, and schedules. However, the General Counsel alleges that its investigation found that McDonald's USA, LLC, through its franchise relationship and its use of tools, resources, and technology, "engages in sufficient control over its franchisees' operations, beyond protection of the brand, to make it a putative joint employer with its franchisees, sharing liability for violations [of labor law]." McDonald's Fact Sheet, National Labor Relations Board, (last visited Feb. 10, 2015).

McDonald's USA, LLC, moved to strike the allegations against it, alleging the NLRB's allegations insufficiently explained how the franchisor "possessed and/or exercised control over the labor relations of" and was a joint employer with the franchisees.

Labor activists have championed the General Counsel's claims, asserting that if franchisors are deemed joint employers, they will be forced to take system-wide action on issues such as minimum wage rates, instead of having individual franchisee employees deal with such issues. Meanwhile, franchise groups, such as the International Franchise Association, argue that the shift will reduce franchisees' independence, raise costs, and significantly deter the establishment of what have been successful business relationships.

These charges have not yet been adjudicated at the regional level.

What does being a "joint employer" mean?

If a company is determined to be a joint employer under the NLRA, several difficult issues arise. Each joint employer will need to be directly involved in the policies and procedures affecting the employees and acknowledge that both must engage in avoiding or implementing policies and practices that arguably are violations of the NLRA. If a union lawfully represents the employees, each joint employer has a duty to bargain with the union over terms and conditions of employment and, perhaps most importantly, will be responsible for unfair labor practices, regardless of which employer's conduct is the basis for the charge.

Even if an expansion of the NLRB's joint employment doctrine should occur, however, a franchisor or user of contract employees may not be forced to bargain with certain large multi-employer bargaining units, by virtue of the Board's decision in Oakwood Care Center, 343 N.L.R.B. 659 (2004).2 Still, a more expansive joint-employer rule will force franchisors and employers engaging contract employees to take a much more active role in managing such employees, a responsibility that may make those arrangements less attractive.

In the meantime, while the above decisions are pending, an employer that is not a joint employer under the current NLRB standard should consider taking steps to oversee subcontractors and franchisees to insure compliance with relevant labor and employment laws; to review existing agreements and practices to determines whether joint control over the employees exists and to make changes to existing agreements, policies or practices so as to avoid application of a join employment doctrine.

If you have any questions about the contents of this alert, please contact the Hiscock & Barclay lawyer with whom you normally work or any attorney in our Labor & Employment Practice Area.

1The rationale behind this opinion has not been made public. See Matthew Haller & Cara Prodanovich, Franchise Association Seeks Details of NLRB Counsel's "Joint Employer" Opinion, International Franchise Association (Oct. 30, 2014 ), Franchise_Association_ Seeks_ Details_ of_ NLRB_Counsel's_"Joint_Employer"_Opinion/). However, the General Counsel has submitted an amicus brief in Browning-Ferris, arguing for a similar change in the standard.

2This is because the NLRB considers an "employer unit" to be the broadest bargaining unit contemplated by the NLRA. Oakwood Care Center, 343 N.L.R.B. 659, 661 (2004). To require multiemployer units would "combine[] jointly employed and solely employed employees in[to] a single unit, with a single union negotiating with two different employers, each of which controls only a portion of the terms and conditions of employment for the unit." Id. at 663. Such an arrangement "subjects employees to fragmented bargaining and inherently conflicting interests, a result that is inconsistent with the Act's animating principles." Id.


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